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Ohio Schools’ K12 Per Pupil State Funding – Does Local Tax Revenue Keep Up?

By Ernie Strawser posted 03-13-2024 03:07 PM

  

by Meghan Homsher - Senior Analytics Advisor, Frontline Education
Ernie Strawser - Senior Analytics Advisor, Frontline Education

Introduction

As property values and taxpayer incomes rise, increases in the Fair School Funding Plan’s (FSFP) local capacity/share calculations, can cause shifts in local versus state’s share of funding. In FY 2022, the median state share of the per pupil FSFP Base Cost funding was 50.8%, the median state share may drop to 46.4% in FY 2025. The number of districts at the minimum 10% state share in 2022 was 56 and that number is expected to increase to 77 in 2025. There are approximately 155 guarantee districts (funded at 2020 levels) in FY 2024, that number could increase to 191 in FY 2025. Property value and taxpayer income increases necessitate that districts analyze their fluctuating per-pupil state funding in conjunction with actual local tax revenue changes. This article examines some of the components most impacting local and state school district revenue.

Fair School Funding Plan – Local Capacity Calculations

FSFP’s per pupil local capacity/share amount is subtracted from the base cost per pupil amount, resulting in the state’s share.  FSFP local capacity calculations are driven by enrollment, property values, and taxpayer incomes.  The Ohio Department of Education and Workforce (ODEW) FY 2025 simulations provide insight into future shifts in local capacity/share.  In the example to the right, District-A, after property values increased, the FSFP calculated local capacity/share increased $611, but local revenue increases by only $473 – an unfavorable difference of ($138) per pupil.  District B is similar, but at the 20-mill floor, still local tax revenue does not keep up with FSFP’s local capacity/share deduction.  In an analysis of 607 Ohio K12 districts using ODEW’s simulations along with Ohio Department of Tax valuation, millage rates, and SDIT data, 345 districts could have less local tax revenue growth than FSFP deducts (as depicted for Districts A &B).   Some districts will have local revenue increases greater than FSFP calculates. 

Increasing property values and taxpayer incomes can reduce the state’s share of per-pupil base cost funding. As the data suggests, local tax revenue does not always increase commensurate to property value increases --   H.B. 920 decreases effective tax rates as values rise. But H.B. 920 cannot reduce a district’s effective rate under 20 mills - the point where revenue grows when values increase due to inflation.  Even with growth, there are many instances when local revenue does not keep up with the calculated increases in FSFP local per-pupil revenue capacity (local share of state funding). Local and State funding must be viewed in unison.

For a district not on the 20-mill floor and on the FSFP per pupil formula (not guarantee), results can be unfavorable.  In the example to the left, in FY 28 the district could gain $279 per pupil in local tax revenue from the 59% reappraisal (compared to a 0% reappraisal). But the district may lose $1,346 per pupil in state funding as property values increase “wealth per pupil” and the FSFP local capacity increases.   By FY 2028 the district could have a net loss of $1,067 per pupil since there is no year-over-year state funding guarantee in the present formula.   The district’s forecast modeling shows a net annual loss of -$80,856 in FY 2025 growing to -$2,907,946 in FY 2028.  The net loss in FY 2028 is a 6.46% of total revenue.

For a district not on the 20-mill floor and on the FSFP per pupil formula (not guarantee), results can be unfavorable.  In the example to the left, in FY 28 the district could gain $279 per pupil in local tax revenue from the 59% reappraisal (compared to a 0% reappraisal). But, the district may lose $1,346 per pupil in state funding as property values increase “wealth per pupil” and the FSFP local capacity increases.   By FY 2028 the district could have a net loss of $1,067 per pupil since there is no year-over-year state funding guarantee in the present formula. The district’s forecast modeling shows a net annual loss of -$80,856 in FY 2025 growing to -$2,907,946 in FY 2028.  The net loss in FY 2028 is 6.46% of total revenue.

Districts with an income tax (SDIT) are more likely (164 districts) to experience local share that keeps up with FSFP.  

Meghan is a senior analytics advisor with Frontline Education where she provides financial forecasting software, training, and data analytics to K-12 schools nationwide. She joined Frontline in 2022, bringing with her over 15 years of experience as a tax analyst with the Ohio Department of Taxation where she regularly worked with schools and local government and focused on state/ local funding. Meghan received a bachelor’s degree in Public Administration from Miami University and a master’s degree in Public Policy Analysis from The Ohio State University.

Summary

  • 345 Districts could see their state local share calculations increase faster than actual local revenue increases.
  • State share of Per Pupil Base Funding is decreasing statewide (from 50.8% to 46.4%).
  • Some districts will lose revenue in response to valuation increases when local and state revenue is combined.
Notes on calculations
Estimated local property tax revenue was calculated using total tax year 2020 values from the Department of Taxation (Taxation). FY 2025 local property tax revenues were calculated using tax year 2023 real property values and, where available, preliminary public utility personal property (PUPP) values from Taxation. Where preliminary 2023 PUPP values were not available, tax year 2022 PUPP values were used. For millage in place in 2020 and 2023, the appropriate rate was applied to district value by class. For fiscal year 2022 school district income tax (SDIT) revenues, total calendar year 2021 distributions were included. Estimated FY 2025 SDIT revenues, are calendar year 2023 distributions plus a 2.8% growth factor. Proportionate adjustments were made for any district with rate changes over time. To compare make per pupil local revenue comparisons, enrollment was held constant for at estimated FY 2025 base cost enrollment (the greater of FY 24 as of January, and the average of FY 24, 23, and 2022).  
Estimated FSFP local capacity change per pupil was calculated with only one year of property valuation (TY 20 for FY 22 and estimated TY 23 for FY 25); under current law FSFP local share is determined using the less of the prior year value or the average of three prior years. Incomes
 State share percentage discussed in the article above is from FY 2022 SFPR detail and FY 2025 funding simulations. Recalculating state share percentage to use only one year of property values (as with the calculated FSPF capacity change per pupil) – the FY 22 median state share would be 50.8% and the estimated FY 25 median state share would be 41.7%. With this recalculation, 56 districts would be at the minimum in FY 22 and 107 in FY 25.
FSFP capacity for the years in question was recalculated using ODEW capacity multipliers from FY 22 SFPR reports and the FY 25 funding calculator. The capacity measure was applied to local wealth using the most recent year of property and income data.
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